TradingAdvanced#Institutional#Liquidity
Order Flow Toxicity
O
Definition
A condition where informed traders (like hedge funds) trade against market makers, causing the latter to lose money consistently.
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Concept Diagram
Key Takeaways
1
Order flow toxicity measures the presence of informed traders in the market who trade ahead of price moves
2
High toxicity means market makers are being adversely selected by informed participants
3
When toxicity spikes, market makers widen spreads or withdraw liquidity to protect themselves
4
Monitoring toxicity helps retail traders avoid trading when professionals are actively hunting
Practical Example
A series of large buy orders hits the BTC order book just before a major ETF approval announcement — this toxic flow from informed traders causes market makers to widen spreads from 0.01% to 0.1% within seconds.
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Related Terms
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MEV (Maximal Extractable Value)The profit that can be gained by users (searchers/validators) by including, excluding, or reordering transactions in a block.
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Liquidity SweepA sharp price movement used to trigger stop losses before reversing, generating the liquidity needed for large institutional positions.
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A-Book vs B-BookA-Book brokers pass trades to external liquidity; B-Book brokers take the opposite side of the client's trade.
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Hyperliquid L1A specialized app-chain designed for high-performance perpetual trading with sub-second finality and native orderbooks.
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